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Item 7. Management’s Discussion and Analysis

2023-03-29 compared with 2022-03-31 · 452 added, 172 removed, 66 unchanged (90% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying consolidated financial statements and notes included in this Report.

We were formerly known as MoSys, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

This Management’s Discussion and Analysis

of Financial Condition and Results of Operations should be read in conjunction with the accompanying consolidated financial statements

and notes included in this Report.

formerly known as MoSys, Inc.

(MoSys) and were incorporated in California in 1991 and reincorporated in 2000 in Delaware.

On September 14, 2021, we and our subsidiaries, 2864552 Ontario Inc.

and 2864555 Ontario Inc., entered into an Arrangement Agreement (the Arrangement Agreement) with Peraso Technologies Inc.

(Peraso Tech), a corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario).

On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and the Company changed its name to “Peraso Inc.” and began trading on the Nasdaq Stock Market (the Nasdaq) under the symbol “PRSO.”

For accounting purposes, the legal subsidiary, Peraso Tech, has been treated as the accounting acquirer and we, the legal parent, have been treated as the accounting acquiree.

The transaction has been accounted for as a reverse acquisition in accordance with Accounting Standards Codification (ASC) No.

805, Business Combinations (ASC 805).

Accordingly, the financial condition and results of operations discussed herein are a continuation of Peraso Tech’s financial results prior to December 17, 2021 and exclude the financial results of us prior to December 17, 2021.

September 14, 2021, we and our subsidiaries, 2864552 Ontario Inc.

and 2864555 Ontario Inc., entered into an Arrangement Agreement (the

Arrangement Agreement) with Peraso Technologies Inc.

(Peraso Tech), a corporation existing under the laws of the province of Ontario,

to acquire all of the issued and outstanding common shares of Peraso Tech (the Peraso Shares), including those Peraso Shares to be issued

in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as

applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario).

17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and

we changed our name to “Peraso Inc.” and began trading on the Nasdaq Stock Market (the Nasdaq) under the symbol “PRSO.”

For accounting

purposes, the legal subsidiary, Peraso Tech, was treated as the accounting acquirer and we, the legal parent, have been treated as the

accounting acquiree.

The transaction was accounted for as a reverse acquisition in accordance with Financial Accounting Standards Board

(FASB) Accounting Standards Codification (ASC) 805, Business Combinations (ASC 805).

Accordingly, the financial condition and results

of operations discussed herein are a continuation of Peraso Tech’s financial results prior to December 17, 2021 and exclude the

financial results of us prior to December 17, 2021.

See Note 2 to the consolidated financial statements for additional disclosure .

Our strategy and primary business objective is to be a profitable, IP-rich fabless semiconductor company offering integrated circuits, or ICs, modules and related non-recurring engineering services.

We specialize in the development of mmWave semiconductors, primarily in the 60 GHz spectrum band for 802.11ad/ay compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices.

We derive our revenue from selling semiconductor devices, as well as modules based on using those mmWave semiconductor devices.

We have pioneered a high-volume mmWave production test methodology using standard low cost production test equipment.

It has taken us several years to refine performance of this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering mmWave products into high-volume markets.

and primary business objective is to be a profitable, IP-rich fabless semiconductor company offering integrated circuits, or ICs, modules

and related non-recurring engineering services.

We specialize in the development of mmWave semiconductors, primarily in the 60 GHz spectrum

band for 802.11ad/ay compliant devices and in the 28/39 GHz spectrum bands for 5G-compliant devices.

We derive our revenue from selling

semiconductor devices, as well as modules based on using those mmWave semiconductor devices.

We have pioneered a high-volume mmWave

production test methodology using standard low cost production test equipment.

It has taken us several years to refine performance of

this production test methodology, and we believe this places us in a leadership position in addressing operational challenges of delivering

mmWave products into high-volume markets.

During 2021, we augmented our business model by selling complete mmWave modules.

The primary advantage provided by a module is the silicon and the antenna are integrated into a single device.

A differentiating characteristic of mmWave technology is that the RF amplifiers must be as close as possible to the antenna to minimize loss, and by providing a module, we can guarantee the performance of the amplifier/antenna interface.

We also acquired a memory product line marketed under the Accelerator Engine name and comprises our Bandwidth Engine and Programmable HyperSpeed Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance.

As we are not developing new memory products, from a product development perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional R&D expenses.

We incurred net losses of approximately $10.9 million and $10.2 million for the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of approximately $117.1 million as of December 31, 2021.

These and prior year losses have resulted in significant negative cash flows for almost a decade and have necessitated that we raise substantial amounts of additional capital during this period.

We expect to incur operating losses and will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

advantage provided by a module is the silicon and the antenna are integrated into a single device.

A differentiating characteristic of

mmWave technology is that the RF amplifiers must be as close as possible to the antenna to minimize loss, and by providing a module, we

can guarantee the performance of the amplifier/antenna interface.

acquired a memory product line marketed under the Accelerator Engine name.

This memory product line comprises our Bandwidth Engine and

Quad Partition Rate IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface

protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance.

We incurred net losses of approximately $32.4

million and $10.9 million for the years ended December 31, 2022 and 2021, respectively, and had an accumulated deficit of approximately

$149.6 million as of December 31, 2022.

These and prior year losses have resulted in significant negative cash flows for almost a decade

and have necessitated that we raise substantial amounts of additional capital during this period.

We will need to increase revenues substantially

beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue

doing business without raising additional capital from time to time.

COVID-19 and Russian Invasion of Ukraine

The global outbreak of the coronavirus disease

2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

government in March 2020.

This has negatively affected the U.S.

and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets.

The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S.

and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted.

Since March 2020, certain jurisdictions in which we operate have issued ”shelter-in-place” orders.

We have complied with these orders and, when such orders were in place, minimized business activities at our facilities.

We have implemented a teleworking policy for our employees and contractors to reduce on-site activity at our facilities.

We remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related to COVID-19.

The ultimate impact of the COVID-19 pandemic on our business and results of operations is uncertain and difficult to predict, and we are closely monitoring impacts, especially to customer programs and our supply chain.

We have and continue to experience longer lead times for certain components used to manufacture our products.

While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead.

We may not be able to address these difficulties in a timely manner, which could negatively impact our business, results of operations, financial condition and cash flows.

The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets.

Our ability to raise additional capital to support operations in the future may be impacted, and we may be unable to access the capital markets and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

and global economy, disrupted global supply chains, significantly restricted travel and transportation,

resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets.

The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the

duration and spread of the pandemic and related actions taken by the U.S.

and foreign government agencies to prevent disease spread, all

of which are uncertain, out of our control, and cannot be predicted.

Since March 2020, certain jurisdictions in which

we operate have from time to time issued “shelter-in-place” orders.

As required, we have complied with these orders and, when

such orders were in place, minimized business activities at our facilities.

We have implemented a teleworking policy for our employees

and contractors to comply with such orders.

As the COVID-19 pandemic evolves, we continue

to closely monitor impacts, especially to customer programs and our supply chain.

We are working internally and with suppliers on

programs (i.e., new production flows, etc.) to allow us to increase our peak throughput to better handle unplanned disruptions to our

supply chain.

To date, we have not experienced a material impact on our cash flows, liquidity, capital resources, cash requirements, financial

position, or results of operations, attributable to the global semiconductor supply chain disruption and inflation.

We have experienced

increased prices from our suppliers, and, for certain products, we have increased prices to our customers to mitigate the impacts, although

during 2022 the impacts of these price increases were minimal.

We have and continue to experience longer lead times for certain components

used to manufacture our products, and, therefore, and, in response, we have identified second and third sources for certain components

used in our module products.

Also, we have increased lead times for our customers.

We have not experienced any issues over our product

quality and product development activities, as we do not rely significantly on outside vendors to manage and perform these activities

We currently have not identified any current impacts of the supply chain disruption and inflation that will affect our future

results, and it is difficult to differentiate whether higher prices are due to supply chain disruption, inflation or a mix of both.

While we believe that

our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that

unpredictable events could create difficulties in the months ahead.

We may not be able to address these difficulties in a timely manner,

which could negatively impact our business, results of operations, financial condition and cash flows.

The continued spread

of COVID-19 has also led to disruption and volatility in the global capital markets.

The Russian invasion of Ukraine in February 2022

has led to further economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively impacted the global

During the third and fourth quarters of 2022, the U.S.

Federal Reserve continued to aggressively address elevated inflation by

increasing interest rates.

Federal Reserve increased interest rates by 75 basis points in each of its meetings held in July,

September and November 2022, with an additional increase of 50 basis points in December 2022, as inflation remains elevated.

Given current

market conditions, we may be unable to access the capital markets, and additional capital may only be available to us on terms that could

be significantly detrimental to our existing stockholders and to our business.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.

Note 1 to the consolidated financial statements included in Item 15 of this Report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.

We have identified the accounting policies below as some of the more critical to our business and the understanding of our results of operations.

These policies may involve estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

Although we believe our judgments and estimates are appropriate, actual future results may differ from our estimates, and if different assumptions or conditions were to prevail, the results could be materially different from our reported results.

Our consolidated financial statements are prepared

in conformity with accounting principles generally accepted in the United States of America.

Note 1 to the consolidated financial statements

included in Item 15 of this Report describes the significant accounting policies and methods used in the preparation of our consolidated

financial statements.

We have identified the accounting policies below

as some of the more critical to our business and the understanding of our results of operations.

These policies may involve estimates

and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

Although we believe our judgments and estimates

are appropriate, actual future results may differ from our estimates, and if different assumptions or conditions were to prevail, the

results could be materially different from our reported results.

Business Combination

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination.

Allocation of purchase consideration to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized.

During the measurement period, which is not to exceed one year from the acquisition date, our records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

We allocate the fair value of purchase consideration

to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.

The excess of

the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to

reporting units based on the expected benefit from the business combination.

Allocation of purchase consideration to identifiable assets

and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas

any indefinite-lived intangible assets, including goodwill, are not amortized.

During the measurement period, which is not to exceed one

year from the acquisition date, our records adjustments to the assets acquired and liabilities assumed, with the corresponding offset

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.

Acquisition-related expenses

are recognized separately from business combinations and are expensed as incurred.

Acquired Intangibles

Acquired intangible assets consist of developed technology and customer relationships that are measured at fair value at date of acquisition.

In valuing acquired intangible assets, we make assumptions and estimates based in part on projected financial information, which makes assumptions and estimates inherently uncertain, particularly for early-stage technology companies.

The significant estimates and assumptions used by us in the determination of the fair value of acquired intangible technology assets include the revenue growth rate, the royalty rate and the discount rate.

The significant estimates and assumptions used by us in the determination of the fair value of acquired customer contract intangible assets include the revenue growth rate and the discount rate.

As a result of the judgments that need to be made, we obtain the assistance of independent valuation firms.

Acquired intangible

assets consist of developed technology and customer relationships that are measured at fair value at date of acquisition.

In valuing acquired

intangible assets, we make assumptions and estimates based in part on projected financial information, which makes assumptions and estimates

inherently uncertain, particularly for early-stage technology companies.

The significant estimates and assumptions used by us in the determination

of the fair value of acquired intangible technology assets include the revenue growth rate, the royalty rate and the discount rate.

significant estimates and assumptions used by us in the determination of the fair value of acquired customer contract intangible assets

include the revenue growth rate and the discount rate.

As a result of the judgments that need to be

made, we obtain the assistance of independent valuation firms.

We complete these assessments as soon as practical after the closing dates.

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Revenue Recognition

We recognize revenue in accordance with Financial Accounting Standards Board ( FASB) ASC Topic 606, Revenue from Contracts with Customers, and its amendments (ASC 606).

As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with our historical practice of recognizing product revenue when title and risk of loss pass to the customer.

We generate revenue primarily from sales of integrated circuits and module products, performance of engineering services and licensing of its intellectual property.

Revenues are recognized when control is transferred to customers in amounts that reflect the consideration we expect to be entitled to receive in exchange for those goods.

We recognize revenue in accordance with FASB ASC

Topic 606, Revenue from Contracts with Customers, and its amendments (ASC 606).

As described below, the analysis of contracts under

ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent

with our historical practice of recognizing product revenue when title and risk of loss pass to the customer.

We generate revenue primarily from sales of integrated

circuits and module products, performance of engineering services and licensing of its intellectual property.

Revenues are recognized

when control is transferred to customers in amounts that reflect the consideration we expect to be entitled to receive in exchange for

Revenue recognition is evaluated through the following five steps:

(i) identification of the contract, or contracts, with a customer;

(i) identification of the contract, or contracts, with

(ii) identification of the performance obligations in the contract;

(iii) determination of the transaction price;

(iv) allocation of the transaction price to the performance obligations in the contract;

and (v) recognition of revenue when or as a performance obligation is satisfied.

(iv) allocation

of the transaction price to the performance obligations in the contract;

and (v) recognition of revenue when or as a performance obligation

is satisfied.

Product revenue

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied.

The majority of our contracts have a single performance obligation to transfer products.

Accordingly, we recognize revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price.

We sell our products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less.

We may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.

License and other

Our licensing contracts typically provide for royalties based on the licensee’s use of our memory technology in its currently shipping commercial products.

We estimate its royalty revenue in the calendar quarter in which the licensee uses the licensed technology.

Revenue is recognized when performance obligations

under the terms of a contract with a customer are satisfied.

The majority of our contracts have a single performance obligation to transfer

Accordingly, we recognize revenue when title and risk of loss have been transferred to the customer, generally at the time of

shipment of products.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products and

is generally based upon a negotiated, formula, list or fixed price.

We sell our products both directly to customers and through distributors

generally under agreements with payment terms typically 60 days or less.

We may record an estimated allowance, at the

time of shipment, for future returns and other charges against revenue consistent with the terms of sale.

Royalty and other

Our licensing contracts typically provide for

royalties based on the licensee’s use of our memory technology in its currently shipping commercial products.

We estimate its royalty

revenue in the calendar quarter in which the licensee uses the licensed technology.

Payments are received in the subsequent quarter.

We also generate revenue from licensing its technology.

We recognize License fee as revenue at the point of time when the control of the license has been transferred and we have no continuing performance obligations to the customer.

also generate revenue from licensing its technology.

We recognize License fee as revenue at the point of time when the control of the

license has been transferred and we have no continuing performance obligations to the customer.

Engineering services revenue

Engineering and development contracts with customers generally contain a single performance obligation that is delivered over time.

Revenue is recognized using an output method that is consistent with the satisfaction of the performance obligation as a measure of progress.

Engineering and development contracts with customers

generally contain a single performance obligation that is delivered over time.

Revenue is recognized using an output method that is consistent

with the satisfaction of the performance obligation as a measure of progress.

Deferred cost of net revenue

During the year ended December 31, 2022, the Company

had $1.1 million of product shipments for which the revenue recognition criteria under ASC 606 had not been met.

Accordingly, the Company

deferred the cost of net revenue associated with these shipments, and the amount deferred has been presented as deferred cost of net revenue

in the consolidated balance sheets.

Contract liabilities - deferred revenue

Our contract liabilities consist of advance customer payments and deferred revenue.

We classify advance customer payments and deferred revenue as current or non-current based on the timing of when we expect to recognize revenue.

As of December 31, 2021, contract liabilities were in a current position and included in deferred revenue.

Our contract liabilities consist of advance customer

payments and deferred revenue.

We classify advance customer payments and deferred revenue as current or non-current based on the timing

of when we expect to recognize revenue.

As of December 31, 2022, contract liabilities were in a current position and included in deferred

Fair Value Measurements of Financial Instruments

We measure the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

Level 2—Pricing is provided by third party sources of market information obtained from investment advisors rather than models.

We do not adjust for or apply any additional assumptions or estimates to the pricing information we receive from advisors.

Our Level 2 securities include cash equivalents and available-for-sale securities, which consisted primarily of corporate debt, and government agency and municipal debt securities from issuers with high quality credit ratings.

Our investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities we hold are not actively traded and have fewer observable transactions.

We measure the fair value of financial instruments

using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as

● Level 1-Inputs used to measure fair value are unadjusted quoted

prices that are available in active markets for the identical assets or liabilities as of the reporting date.

● Level 2-Pricing is provided by third party sources of market

information obtained from investment advisors rather than models.

We do not adjust for or apply any additional assumptions or estimates

to the pricing information we receive from advisors.

Our Level 2 securities include cash equivalents and available-for-sale securities,

which consisted primarily of corporate debt, and government agency and municipal debt securities from issuers with high quality credit

Our investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive

Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities we hold are not actively traded and

have fewer observable transactions.

We consider this the most reliable information available for the valuation of the securities.

Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value.

These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments.

The carrying values of lease obligations and long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates

● Level 3-Unobservable inputs that are supported by little or

no market activity and reflect the use of significant management judgment are used to measure fair value.

These values are generally

determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.

The carrying amounts of financial assets and liabilities,

such as cash and cash equivalents, accounts receivable, accounts payable, notes payable and other payables, approximate their fair values

because of the short maturity of these instruments.

The carrying values of lease obligations and long-term financing obligations approximate

their fair values because interest rates on these obligations are based on prevailing market interest rates.

We measure the fair value

of our warrant liabilities using Level 3 inputs.

Valuation of long-lived assets

We evaluate our long-lived assets for impairment at least annually, or more frequently when a triggering event is deemed to have occurred.

This assessment is subjective in nature and requires significant management judgment to forecast future operating results, projected cash flows and current period market capitalization levels.

We evaluate our long-lived assets for impairment

at least annually, or more frequently when a triggering event is deemed to have occurred.

This assessment is subjective in nature and

requires significant management judgment to forecast future operating results, projected cash flows and current period market capitalization

If our estimates and assumptions change in the future, it could result in a material write-down of long-lived assets.

We amortize our finite-lived intangible assets, such as developed technology and patent license, on a straight-line basis over their estimated useful lives of three to seven years.

We recognize an impairment charge as the difference between the net book value of such assets and the fair value of the assets on the measurement date.

our finite-lived intangible assets, such as developed technology and patent license, on a straight-line basis over their estimated useful

lives of three to seven years.

We recognize an impairment charge as the difference between the net book value of such assets and the fair

value of the assets on the measurement date.

Deferred tax valuation allowance

When we prepare our consolidated financial statements, we estimate our income tax liability for each of the various jurisdictions where we conduct business.

This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting purposes.

These differences result in deferred tax assets, which we show on our consolidated balance sheet under the category of other assets.

The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We must make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset.

We believe that utilization of our net operating loss and tax credit carryforwards, which comprise the majority of our deferred tax assets, may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and

similar state provisions.

See Note 4 to the consolidated financial statements in Item 15 of this report for an additional description of these limitations .

When we prepare our consolidated financial statements,

we estimate our income tax liability for each of the various jurisdictions where we conduct business.

This requires us to estimate our

actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting

These differences result in deferred tax assets, which we show on our consolidated balance sheet under the category of other

The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely

than not that some or all of the deferred tax assets will not be realized.

We must make significant judgments to determine our provision

for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset.

We believe that utilization of our net operating loss and tax credit carryforwards, which comprise the majority of our deferred tax assets,

may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar

state provisions.

See Note 4 to the consolidated financial statements in Item 15 of this report for an additional description of

these limitations.

Derivatives and liability-classified instruments

We account for common stock warrants as either

equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the guidance provided

by FASB ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815).

The assessment

considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant

to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our

stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of our control,

among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the

time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

Stock-based compensation

We recognize stock-based compensation for equity awards on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair value.

We estimate the value of employee stock options on the date of grant using the Black-Scholes model.

The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price, as well as assumptions regarding a number of highly complex and subjective variables.

These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior.

The expected volatility is based on the historical volatility of our stock price.

We recognize stock-based compensation for equity

awards on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair value.

estimate the value of employee stock options on the date of grant using the Black-Scholes option pricing model.

The determination of fair

value of share-based payment awards on the date of grant using an option pricing model is affected by our stock price, as well as assumptions

regarding a number of highly complex and subjective variables.

These variables include, but are not limited to, the expected stock price

volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.

The expected term of options

granted is derived from historical data on employee exercises and post-vesting employment termination behavior.

The expected volatility

is based on the historical volatility of our stock price.

Results of Operations

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Percentage of total net revenue

Product revenue increased in 2021 compared with 2020 due to increased shipments of our mmWave IC and module products.

We commenced selling our module products in 2021.

We expect revenues to increase in 2022, as we expect increased sales of our mmWave products and full-year contribution of revenues from our memory products.

The following table details revenue by product category:

(amounts in thousands)

Years Ended December 31,

Product category

mmWave modules

mmWave other products

Product revenue increased for the year ended December

31, 2022 compared with the same period of 2021 primarily due to the increase in both memory IC and mmWave module sales volumes as a result

of the acquisition of the memory IC product line in December 2021 and the roll-out of the mmWave antenna module product line in the second

half of 2021.

As previously discussed in this Report, for reverse-acquisition accounting purposes, Peraso Tech, was treated as the accounting

acquirer, and MoSys was treated as the accounting acquiree.

Accordingly, the results of operations discussed herein are a continuation

of Peraso Tech’s historical financial results and exclude the results of operations of MoSys prior to December 17, 2021.

in memory IC sales volumes, which was due to the acquisition of this product line, resulted in a $7.6 million increase in revenues for

the year ended December 31, 2022, as compared with the prior year due to the significant increase in sales volumes year over year.

Additionally,

we began selling our mmWave module products during the second half of 2021 and realized a 100% increase in sales volumes in 2022, which

contributed $2.1 million of increased revenue for the year ended December 31, 2022.

We initiated price increases on certain of our module

products in 2022, however, through December 31, 2022, we had not realized any material increase in revenue as a result of those price

These revenue increases were partially offset by a decrease of $0.3 million in sales of our mmWave IC products due to a 39%

reduction in volumes shipped during the year ended December 31, 2022, compared with the same period in 2021.

Although, stand-alone mmWave

IC volumes decreased, shipments of our mmWave modules, that include the mmWave ICs, have increased and each module we ship includes two

of our mmWave ICs and an antenna.

We began shipping modules as it provides an integrated solution that we believe can shorten our revenue

cycle by enabling our customers to accelerate time to production.

In addition, we generate higher revenue from the sale of modules compared

to sales of stand-alone ICs.

Going forward, we expect sales of our mmWave ICs on a stand-alone basis to decline as a percentage of total

product revenue, as we anticipate sales of our modules to be our primary source of revenue growth.

We expect revenues to increase in 2023, as we

anticipate increased sales of our mmWave products, including the benefits of price increases implemented in 2022.

We also expect sales

of our memory products to decrease from a volume and revenue perspective over the next 12 months.

Our memory products have been in production

since 2014, and, given that we have not developed new products, the long-term outlook for these products is uncertain.

We have implemented

modest price increases on our memory products that we expect to begin taking effect in the first half of 2023.

We expect sales of our

mmWave products to increase from a volume and revenue perspective over the next 12 months, as our primary sales focus is on obtaining

new customers for our mmWave products.

Years Ended December 31,

Year-Over-Year Change

(dollar amounts in thousands)

License and other

Royalty and other

Percentage of total net revenue

License and other includes license, non-recurring engineering, or NRE, services and royalty revenues.

The decrease from 2021 to 2020 was primarily due to a one-time license of $5.0 million from a lead customer recognized in the fourth quarter of 2020, decrease of $5.0 million one license revenue combined with reduced NRE revenues.

Royalty and other includes royalty, non-recurring

engineering services and licenses revenues.

The decrease in royalty and other revenue for the year ended December 31, 2022 compared with

the same period of 2021 was primarily due to a decrease in non-recurring engineering services revenue related to our mmWave technology.

Such decrease was partially offset by a full twelve-month contribution of royalty revenues from licensees of our memory technology.

the reverse acquisition occurred on December 17, 2021, the results of operations for the year ended December 31, 2021 include approximately

$113,000 of royalty revenue from licensing of memory technology compared with $480,000 for the year ended December 31, 2022.

Cost of Net Revenue and Gross Profit

8 unchanged sentences

Percentage of total net revenue

In 2021 and 2020 cost of net revenue primarily consisted of direct and indirect costs related to IC and module sales.

Cost of net revenue increased in 2021 from 2020 due to increased product shipments.

Gross profit de creased from 20 21 to 20 20 primarily due to the lower l icense and NRE revenue , which have higher margins than product revenues .

Research and Development

Cost of net revenue is primarily comprised of

direct and indirect costs related to the sale of our products, including amortization of intangible assets and depreciation of production-related

fixed assets.

Cost of net revenue increased for the year ended December 31, 2022 when compared with the same period of 2021, primarily

due to increased shipment volumes of our memory and mmWave ICs and antenna module products.

Our antenna module products have higher cost

of goods sold per unit and generate lower gross profit margin than our IC products.

Gross profit increased for the year ended December

31, 2022 compared with the same period of 2021 due to the increased product shipments.

The decrease in our gross profit margin for the

year ended December 31, 2022 compared with the prior year periods was primarily attributable to the increased volume shipments of our

mmWave modules, which carry lower gross margins than our IC products.

Research and Development (R&D)

Years Ended December 31,

3 unchanged sentences

Percentage of total net revenue

Our research and development expenses include costs related to the development of our products.

We expense research and development costs as they are incurred.

Research and development expenses increased in 2021 compared with 2020 primarily due to increased personnel costs and consulting expenses were offset by the government wage and rent subsidies.

Research and development expenses included stock-based compensation expenses of $2.8 million and $1.0 million for the years ended December 31, 2021 and 2020, respectively.

We expect that total research and development expenses will increase in 2022, as we continue development of our products and technologies.

Our R&D expenses include costs related to

the development of our products.

We expense R&D costs as they are incurred.

The increase for the year ended December 31, 2022 compared

with the same period of 2021 was primarily due to the inclusion of a full twelve months of expenses of $4.3 million related to the acquired

operations of MoSys, $2.1 million of amortization of acquired intangible assets from the reverse

acquisition, which closed on December 17, 2021, and recognition of $2.0 million of Canadian government refundable tax credits and

wage and rent subsidies during the twelve months ended 2021 that reduced operating expenses.

expect that total R&D expenses will decrease in 2023 compared with 2022, as we began implementing cost reductions during the three

months ended December 31, 2022.

The reductions in R&D expense in 2023 will primarily result from lower headcount, including a reduction

of employees and consulting positions, as well as targeted reductions in expenditures for certain longer-term research and development

Selling, General and Administrative (SG&A)

3 unchanged sentences

Percentage of total net revenue

Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management.

Selling, general and administrative expenses decreased slightly for 2021, compared with the prior year, primarily as a result of decreased legal expenses, bad debt expense and wage and rent expenses.

The decrease in wage and rent expenses was attributed to higher government wage and rent subsidies received from the Canadian government, which are recorded as a reduction of operating expenses.

This was partially offset by $1.6 million in transaction costs, including legal consulting and accounting and auditing) incurred in connection with the business combination with MoSys and a $1.0 million increase in stock-based compensation expense.

Selling, general and administrative expenses included stock-based compensation expenses of $1.7 million for the year ended December 31, 2021 and of $0.7 million for the year ended December 31, 2020.

We expect total selling, general and administrative expenses to increase in 2022, as our 2022 will include the results of the MoSys business for the full year.

Interest expense

Years Ended December 31,

Year-Over-Year Change

(dollar amounts in thousands)

SG&A expenses consist primarily of personnel

and related overhead costs for sales, marketing, finance, human resources and general management and amortization of certain intangible

The increase for the year ended December 31, 2022 compared with 2021 was primarily due to the inclusion of a year of expenses

related to the acquired operations of MoSys, which amounted to $5.7 million, and included all costs of being a publicly-traded company

as well as a recognition of $0.1 million of Canadian government wage and rent subsidies during the year ended December 31, 2021 that reduced

SG&A expense.

This increase was partially offset by a $1.1 million decrease in transaction costs incurred during 2021 related to the

reverse acquisition.

We expect that total SG&A expenses will decrease in 2023 compared with

2022, as we implemented cost reductions during the three months ended March 31, 2023.

The reductions in SG&A expense in 2023 will

primarily result from lower headcount, including a reduction of employees and reductions of other discretionary operating expenses.

Interest expense

Percentage of total net revenue

Interest expense was incurred on our loans payable and convertible debentures, which were retired during 2021.

See Note 11 to the consolidated financial statements in Item 15 of this Report for additional disclosure.

Interest expense was primarily incurred on our

loans payable and convertible debentures, which were retired during 2021.

See Note 11 to the consolidated financial statements in Item

15 of this Report for additional disclosure.

Liquidity and Capital Resources;

At December 31, 2021, we had cash, cash equivalents and investments totaling $18.1 million compared with cash, cash equivalents and short-term investments of $1.7 million as of December 31, 2020.

We believe that cash generated from our liquidity sources will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months.

In 2021, we used $12.0 million in cash from operating activities, which primarily resulted from the net loss of $10.9 million, adjusted for non-cash charges and gains, which included the change in fair value of warrant liability of $8.1 million, changes to operating assets and liabilities of approximately $1.4 million, partially offset by stock-based compensation expenses of $4.5 million, depreciation and amortization expenses of $1.1 million, accrued interest of $0.7 million and amortization of debt discount of $2.1 million.

The changes in assets and liabilities primarily related to the timing of the collection of receivables from customers, payments to vendors and decreases in inventory balances.

In 2020, we used $10.2 million in cash from operating activities, which primarily resulted from the net loss of $10.2 million, adjusted for non-cash charges and gains, which included stock-based compensation expenses of $1.7 million, depreciation and amortization expenses of $1.4 million, finance cost related to warrants of $1.0 million, accrued interest expense of $0.3 million and amortization of debt discount of $0.6 million, offset by changes to operating assets and liabilities of approximately $5.0 million.

The changes in assets and liabilities primarily related to the timing of the collection of receivables from customers and payments to vendors.

In 2021, net cash provided from investing activities of $6.6 million represented $6.5 million of proceeds from the Arrangement, $0.4 million proceeds from the maturities of short-term investments partially offset by $0.2 million for purchases of fixed assets and intangible assets.

The net cash used in investing activities in 2020 consisted of minimal spend for purchases of fixed assets.

In 2021, net cash provided by financing activities was $9.6 million and consisted of $9.1 million in net proceeds received from convertible debentures and net proceeds of $1.3 million from a loan facility, partially offset by $0.8 million for the repayment of loans.

In 2020, net cash provided by financing activities was $10.1 million and consisted of $3.4 million in net proceeds received from convertible debentures, $6.2 million in net proceeds received from debtor-in-possession loans, and net proceeds of $0.6 million from a loan facility, partially offset by $0.1 million for the repayment of loans.

Our future liquidity and capital requirements are expected to vary from quarter to quarter, depending on numerous factors, including:

Changes in Financial Condition

At December 31, 2022, we had cash, cash equivalents

and investments totaling $2.9 million compared with cash, cash equivalents and investments of $18.1 million as of December 31, 2021.

In 2022, we used $16.0 million in cash from operating activities, which

primarily resulted from the net loss of $32.4 million and changes to operating assets and liabilities of approximately $2.4 million, adjusted

for non-cash charges and gains, including stock-based compensation expenses of $5.7 million, depreciation and amortization expenses of

$3.1 million, a $9.9 million goodwill impairment charge and $0.1 million of other changes.

The changes in assets and liabilities primarily

related to the timing of the collection of receivables from customers, payments to vendors and increases in inventory balances.

In 2021, we used $12.0 million in cash from operating

activities, which primarily resulted from the net loss of $10.9 million, changes to operating assets and liabilities of approximately

$1.4 million, and an adjustment for a non-cash gain on the change in fair value of warrant liability of $8.1 million, adjusted for non-cash

charges, including stock-based compensation expenses of $4.5 million, depreciation and amortization expenses of $1.1 million, accrued

interest of $0.7 million and amortization of debt discount of $2.1 million.

The changes in assets and liabilities primarily related to

the timing of the collection of receivables from customers, payments to vendors and increases in inventory balances.

In 2022, net cash provided from investing activities

of $10.0 million represented $11.5 million of proceeds from maturities and sales of short-term investments, partially offset by $0.5 million

purchases of short and long-term investments and $1.0 million of purchases of fixed assets and intangible assets.

In 2021, net cash provided from investing activities

of $6.6 million represented $6.5 million of proceeds from the Arrangement, $0.4 million of proceeds from maturities of short-term investments,

partially offset by $0.2 million of purchases of fixed assets and intangible assets.

In 2022, net cash provided by financing activities

was $1.9 million and consisted of $2.1 million in net proceeds from a registered direct offering of our common stock and common stock

purchase warrants completed in November 2022, partially offset by $0.1 million of taxes paid to net share settle equity awards and $0.1

million of repayment of finance lease.

In 2021, net cash provided by financing activities

was $9.6 million and consisted of $9.1 million in net proceeds received from convertible debentures and net proceeds of $1.3 million from

a loan facility, partially offset by $0.8 million for the repayment of loans.

Our future liquidity and capital requirements

are expected to vary from quarter-to-quarter, depending on numerous factors, including:

● level of revenue;

● cost, timing and success of technology development efforts;

inventory levels, timing of product shipments and length of billing and collection cycles;

fabrication costs, including mask costs, of our ICs, currently under development;

variations in manufacturing yields, materials costs and other manufacturing risks;

costs of acquiring other businesses and integrating the acquired operations;

● inventory levels, as supply chain disruption has required

us to maintain higher inventory levels and place purchase orders with our suppliers longer into the future, which exposes us to additional

inventory risk;

● timing of product shipments, which may be impacted by supply

chain disruptions;

● length of billing and collection cycles, which may be impacted

in the event of a global recession or economic downturn;

● fabrication costs, including mask costs, of our ICs, currently

under development;

● variations in manufacturing yields, material lead time and

costs and other manufacturing risks;

● costs of acquiring other businesses and integrating the acquired

● profitability of our business.

Working Capital

Our primary need for liquidity is to fund working capital requirements of our businesses, capital expenditures and for general corporate purposes.

We expect our cash expenditures to exceed receipts in 2022, as we do not expect our revenues will be sufficient to offset our working capital requirements.

We incurred net losses of approximately $10.8 million and $10.2 million for the years ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of approximately $117.1 million as of December 31, 2021.

These and prior year losses have resulted in significant negative cash flows and have required us to raise substantial amounts of additional capital during this period.

To date, we have primarily financed our operations through multiple equity offerings of preferred stock, issuances of convertible debentures, utilization of loan facilities and government subsidies and credits.

However, there can be no assurance that our capital is sufficient to fund operations until such time as we begin to achieve positive cash flows.

We have an effective shelf registration statement under which we could sell additional securities without advance notice.

We may need to raise additional capital, but there can be no assurance that such funding will be available to us on favorable terms, if at all.

The failure to raise capital when needed could have a material adverse effect on our business and financial condition.

We may not be able to obtain additional financing as needed on acceptable terms, or at all, which may require us to reduce our operating costs and other expenditures, including reductions of personnel, salaries and capital expenditures.

Alternatively, or in addition to such potential measures, we may elect to implement additional cost reduction actions as we may determine are necessary and in our best interests.

Any such actions undertaken might limit our opportunities to realize plans for revenue growth and we might not be able to reduce our costs in amounts sufficient to achieve break-even or profitable operations.

If we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership.

If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating results and financial condition.

If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

Going Concern - Working Capital

We incurred net losses of approximately $32.4

million and $10.9 million for the years ended December 31, 2022 and 2021, respectively, and we had an accumulated deficit of approximately

$149.6 million as of December 31, 2022.

These and prior year losses have resulted in significant negative cash flows and have required

us to raise substantial amounts of additional capital.

To date, we have primarily financed our operations through loans, offerings of

common stock and issuance of convertible notes.

We expect to continue to incur operating losses

during 2023 as we continue to secure new customers for and continue to invest in the development of our products, and we expect our cash

expenditures to continue to exceed receipts for at least the next 12 months, as our revenues will not be sufficient to offset our operating

We will need to increase revenues beyond the levels

that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business

without raising additional capital from time to time.

As a result of our expected operating losses and cash burn and recurring losses

from operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty

regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability

to continue as a going concern within one year from the date of issuance of these consolidated financial statements.

The consolidated

financial statements presented in Item 8 of this Report have been prepared assuming that we will continue as a going concern, and do not

include any adjustments that might result from the outcome of this uncertainty.

There can be no assurance that such additional capital,

whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered

on terms and conditions acceptable to us.

We are currently seeking additional financing in order to meet our cash requirements for the

foreseeable future.

If the Company is unsuccessful in these efforts, it will need to implement additional cost reduction strategies, which

could further affect its near- and long-term business plan.

These efforts may include, but are not limited to, reducing headcount and

curtailing business activities.

As further discussed in Note 13 to the consolidated financial statements, in August 2022, we entered into

an exclusive technology license and patent assignment agreement with Intel Corporation, under which we collected $3.1 million in August

2022 and we collected $0.4 million in January 2023.

We expect this transaction to result in a reduction of operating expenses of approximately

$2.7 million on annual basis.

Further, in February 2023, we announced that we had implemented cost-reduction initiatives to reduce operating

expenses by approximately $5 million on an annualized basis.

If we were to raise additional capital through

sales of our equity securities, our stockholders would suffer dilution of their equity ownership.

If we engage in debt financing, we may

be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing

our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating

results and financial condition.

If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other

● develop or enhance our products;

expand our product development and sales and marketing organizations;

● continue to expand our product development and sales and marketing

organizations;

● acquire complementary technologies, products or businesses;

expand operations;

● expand operations, in the United States or internationally;

● hire, train and retain employees;

respond to competitive pressures or unanticipated working capital requirements.

Our failure to do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our existing operations or research and development plans.

● respond to competitive pressures or unanticipated working

capital requirements.

Our failure to do any of these things could seriously

harm our ability to execute our business strategy and may force us to curtail our existing operations.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.

We do not maintain any off-balance sheet arrangements

or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations,

liquidity or capital resources.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract, which may include, for example, losses arising from litigation or claims relating to past performance.

Such indemnification clauses may not be subject to maximum loss clauses.

In the ordinary course of business, we enter into

contractual arrangements under which we may agree to indemnify the counter-party from losses relating to a breach of representations and

warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the contract,

which may include, for example, losses arising from litigation or claims relating to past performance.

Such indemnification clauses may

not be subject to maximum loss clauses.

We have also entered into indemnification agreements with our officers and directors.

No material amounts related to these indemnifications are reflected in our consolidated financial statements for the years ended December 31, 2021 or 2020.

amounts related to these indemnifications are reflected in our consolidated financial statements for the years ended December 31, 2022

Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements in Item 15 of this Report for a full description of recent accounting pronouncements.

See Note 1 to the consolidated financial statements

in Item 15 of this Report for a description of recent accounting pronouncements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis